BIR Ruling No. 210-82

July 8, 1982 BIR RULING NO. 210-82 29 (c) 000-00 210-82 Hydro Resources Contractors Corporation 100 E. Rodriguez Jr. Avenue Ugong Norte, Quezon City Attention: Mr . Reynaldo S . Tanjangco Vice President-Finance Treasurer Gentlemen : In reply to your letters dated February 2 and 16, 1982, please be informed that pursuant to Republic Act No. 4917, which was incorporated effective June 3, 1977 by Presidential Decree No. 1158-A in the Tax Code of 1977, as amended, as Section 29(b)(7)(A) (now Section 29(c)(7)(A)) thereof, the retirement benefits received by officials and employees who have been in the service of the same private firm for at least ten (10) years and who are not less than fifty (50) years of age at the time of retirement are exempt from all taxes provided that the retirement benefits are in accordance with a reasonable private benefit plan maintained by the employer. However, in order that retiring employees who meet the qualifications called for by the law may avail of the tax-exemption benefit under Section 29(c)(7)(A) of the Tax Code, as amended, the employer-company must submit to this Office, B.I.R. Form No. 17.60 duly filled out and accompanied by a written program constituting the plan and the trust instrument (Sec. 6, Revenue Regulations No. 1-68 dated March 25, 1968 implementing R.A. No. 4917); otherwise, the benefits to be received by the retiring employee under the Plan shall be subject to the withholding tax. Moreover, under the final proviso of Section 1, Republic Act No. 4917 (now Section 29(c)(7)(B), NIRC) any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be requested or initiated by him. In other words, the separation must not be of his own making. (Sec. 4(f), Revenue Regulations No. 1-68 supra ) Presidential Decree No. 220 was, likewise, incorporated effective June 3, 1977 by Presidential Decree No. 1158-A in the Tax Code of 1977, as amended, as Section 29(b)(7)(C) (now Section 29(c)(7)(C)) thereof, expressly exempting from income tax, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign sources, i.e. foreign government agencies and other institutions, private or public. In the instant case, the four (4) officers who retired from the service of your company as of December 31, 1981 did not receive their retirement benefits under a qualified retirement plan because you do not maintain one for them. Neither can they avail of the tax-exemption under Section 29(c)(7)(B) and (C) of the Tax Code, as amended, because they were separated from the service of your company not for reasons beyond their control, and the retirement benefits are received by them from that company which is a domestic corporation and, therefore, not a foreign source retirement benefit. In view thereof, this Office is of the opinion as it hereby holds that until such time that the Retirement Plan for your employees is submitted and its qualification for tax-exemption under Section 29(c)(7)(A) of the Tax code, as amended, is determined by this Office, the separation/retirement benefits which are being paid out of the said Benefit Plan shall be subject to income tax and consequently to the withholding tax prescribed by Section 21 in relation to Section 91 of the Tax Code, as amended by Batas Pambansa Blg. 135 and as amplified by Revenue Regulations No. 20-81 dated December 16, 1981. cdta Very truly yours, RUBEN B. ANCHETA Acting Commissioner